Imagine This
Your relationship with your bank takes a serious turn when you receive notice that your company has been moved to its “Special Assets” department. This department, also known as the “workout” team, specializes in managing and liquidating troubled loans. Your loans are now classified as distressed due to perceived risks in your company’s operations that exceed the bank’s acceptable levels. As a result, the bank has decided to sever its relationship with your company and has brought in specialists to handle the process of winding down your loans efficiently.
Special Assets bankers are solely focused on collecting all outstanding balances owed to the bank, including principal, interest, fees, and associated expenses. They have the expertise and authority to use various tools to accomplish this goal swiftly.
Your former banker, who maintained a relationship with your company, will now have minimal involvement. While they may stay informed about collection actions, they will not participate in decisions made by Special Assets bankers, who prioritize collection above all else.
Once assigned to Special Assets, it’s unlikely your banking relationship will return to normal. Even if your company’s status improves, you will likely remain branded as a Special Assets customer. This situation necessitates exploring options to replace your lender and sever ties with the bank.
What Should You Do Now?
- Contact the Special Assets Department: Reach out directly to the head of the bank’s Special Assets department to understand their policies and requirements for managing loans in distress.
- Ask Specific Questions: Inquire about the conditions that led to this action, such as loan covenant violations, payment delays, or changes in your business environment that concern the bank. Clarify the bank’s strategy for loan collection and the timeline for these efforts.
Understanding Expectations:
- The bank will closely monitor your company’s ability to repay its debts. Expect heightened reporting requirements and more frequent collateral valuations and audits. In some cases, the bank may even impose strict control over cash flows and require additional capital injections.
- Prepare for additional costs associated with the bank’s collection efforts, including penalty interest rates, appraisal fees, legal expenses, and potentially demanding early repayment of outstanding balances.
- Familiarize yourself with terms like bankruptcy proceedings, foreclosure, and collateral management, as these are part of the Special Assets banker’s toolkit. They are well-versed in legal rights and strategies to maximize the bank’s recovery.
Managing Changes:
- Cooperation with Special Assets: Collaboration is key to navigating this challenging situation. Avoid confrontations and delays, as these can escalate costs and expedite your company’s exit from the bank.
- Provide Transparency: Assist the bank in evaluating your company’s assets and financial health. Offer accurate and timely information to support valuation processes and demonstrate your commitment to resolving the situation.
- Prepare for Cash Flow Management: Develop cash flow projections and weekly reports to assure the bank of your company’s ability to manage its financial obligations and protect collateral.
Survival Planning: Assess the viability of your core business and explore strategic alternatives such as mergers, sales, or liquidation. Use cash flow projections to evaluate options and inform necessary adjustments.
External Support: Engage experienced legal counsel and turnaround professionals with expertise in restructuring and negotiating with banks. Consider specialists familiar with bankruptcy proceedings, as they can provide critical guidance during negotiations.
Seek a New Lender: Immediately initiate a search for alternative financing sources that may offer more flexibility and understanding of your company’s situation. Asset-based lenders or specialists in turnaround financing may be viable options.
In Summary
The bank’s decision to move your company to Special Assets reflects concerns about its ability to meet financial obligations. While addressing these issues may allow your company to recover, do not expect the bank to restore its previous relationship with you. Plan to transition to a new financial partner promptly to protect your company’s interests and facilitate its recovery.
If your company is facing circumstances like those described above and you would like assistance in navigating through these challenges, please contact Glen Terry at gterry@cfos2go.com.
For your Talent needs in direct hire, full-time or part-time contract staffing, contact Executive Recruiter, Leesa Meintzer at leesa@2gorecruiting.com.
Glen Terry is a seasoned executive with more than four decades of extensive experience in the banking sector. He has assisted companies in resolving challenges that have arisen between borrowers and their banks. He has partnered with companies to restructure and renegotiate banking relationships, including transitioning to new providers.
Leesa Meintzer is an executive recruiter with more than 20 years of experience in talent acquisition. She excels in partnering across various business functions and brings a comprehensive perspective to talent acquisition. She works with Engineering, Healthcare, Product, Finance, Accounting, Business Operations, Sales, Legal, Human Resources, Learning & Development, and Talent Acquisition for corporate and high-growth start-ups.